Mazars Recovery & Restructuring (Pty) Ltd and Others v Montic Dairy (Pty) Ltd (in liquidation) and Others

Montic Dairy (Pty) Ltd was placed under business rescue proceedings on 2 November 2015, with the second to fourth appellants appointed as business rescue practitioners (BRPs), who were employees and directors of the first appellant, Mazars Recovery & Restructuring (Pty) Ltd. On 14 April 2016, creditors commenced liquidation proceedings against the company. The BRPs initially opposed but withdrew their opposition on 12 May 2016. On 28 April 2016, the BRPs resolved that there were no longer any reasonable prospects for the company to be rescued. On 16 May 2016, the BRPs launched an urgent application to discontinue business rescue proceedings and convert them to liquidation proceedings under section 141(2)(a) of the Companies Act 71 of 2008. While this conversion application was pending, on 23 May 2016 and 2 June 2016, the BRPs made two payments totalling R1.5 million to Mazars in respect of their fees and expenses. On 14 June 2016, a winding-up order was granted and the second to fourth respondents were appointed as liquidators. The liquidators subsequently challenged the validity of these payments.

• Whether payments made to business rescue practitioners after the commencement of liquidation proceedings but before the final winding-up order are void in terms of section 341(2) read with section 348 of the Companies Act 61 of 1973
• Whether payments to BRPs constitute 'dispositions' of company property under section 341(2)
• Whether sections 143(1), 135(3) and 143(5) of the Companies Act 71 of 2008 create a statutory carve-out from the operation of section 341(2) for BRP fees
• Whether BRPs have a statutorily mandated right to payment that exempts them from section 341(2)
• The ranking and preference of BRP claims after conversion of business rescue to liquidation

The appeal was dismissed with costs, including the costs of two counsel. The high court's order declaring the payments void and ordering Mazars and the BRPs to repay the amounts to the liquidators was upheld.

Every disposition of property by a company being wound-up made after the commencement of winding-up (being the date of presentation of the application for winding-up per section 348) is void in terms of section 341(2) of the Companies Act 1973 unless the court orders otherwise. Payments to business rescue practitioners in respect of fees and expenses after commencement of liquidation proceedings but before the final winding-up order constitute dispositions that are void under section 341(2). Sections 143(1), 135(3) and 143(5) of the Companies Act 2008 do not create a statutory carve-out from section 341(2) for BRP fees, as these provisions regulate remuneration and preferences only during business rescue proceedings, not after conversion to liquidation. BRPs seeking to validate such payments must avail themselves of the proviso in section 341(2) by applying to court for validation, failing which the payments are void ex tunc. After the decision to convert business rescue to liquidation, BRPs are in the same position as other creditors subject to section 341(2), though they retain preferential ranking in the liquidation after costs but before other creditors.

Hughes JA noted that the BRPs' conspicuous failure to refer to the recent Supreme Court of Appeal decision in Pride Milling Company (Pty) Ltd v Bekker NO was telling. Ponnan JA observed that accepting the BRPs' argument would render nugatory the discretion conferred upon a court by the proviso in section 341(2) and would place all payments made by BRPs in the relevant period beyond judicial scrutiny, which could hardly have been the Legislature's intention. Ponnan JA also commented that the remedies available to BRPs (validation under section 341(2) proviso and preference in liquidation ranking) cater entirely for any undue hardship and serve to balance all relevant interests. The Court noted that the exercise of discretion under the proviso allows a court to refuse validation of excessive fees or validate them only in part. Hughes JA remarked that the case argued by the BRPs evolved and was in total contrast to that set out in their heads of argument.

This judgment provides critical clarification on the interaction between business rescue provisions under the Companies Act 2008 and liquidation provisions preserved from the Companies Act 1973. It establishes that section 341(2) applies to payments made by business rescue practitioners after commencement of liquidation proceedings, even where made during the interim period before final winding-up order. The case confirms that BRPs do not enjoy 'super-preference' or automatic exemption from section 341(2), and that sections 143 and 135 of the 2008 Act operate only during business rescue proceedings, not after conversion to liquidation. It reinforces the remedies available to BRPs: (1) seeking court validation under the proviso to section 341(2); and (2) claiming preference in the liquidation ranking after costs but before other creditors (as established in Diener). The judgment prevents BRPs from circumventing the statutory scheme by making payments during the interim period and emphasizes that all interests must be balanced in light of applicable provisions when business rescue fails.